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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2001
-------------------------------------------------
Commission File Number 1-8918
SUNTRUST BANKS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1575035
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia 30308
(Address of principal executive offices) (Zip Code)
(404) 588-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
At October 31, 2001, 288,814,992 shares of the Registrant's Common Stock, $1.00
par value were outstanding.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 29
PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and
accordingly do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the full year
2001.
2
Consolidated Statements of Income
---------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
----------------------------------- ---------------------------------
(Dollars in thousands except per share data) (Unaudited) 2001 2000 2001 2000
---------------- ---------------- --------------- ---------------
Interest Income
Interest and fees on loans $ 1,173,182 $ 1,455,601 $ 3,841,287 $ 4,129,504
Interest and fees on loans held for sale 57,466 28,462 145,954 77,291
Interest and dividends on securities available for sale
Taxable interest 231,374 224,364 745,180 679,896
Tax-exempt interest 7,173 6,334 21,809 19,661
Dividends (1) 17,548 15,549 51,907 50,321
Interest on funds sold 11,601 26,636 43,904 70,479
Interest on deposits in other banks 3,258 138 4,464 705
Other interest 8,342 7,132 33,971 19,237
------------ ------------ ------------ ------------
Total interest income 1,509,944 1,764,216 4,888,476 5,047,094
------------ ------------ ------------ ------------
Interest Expense
Interest on deposits 417,337 651,536 1,486,464 1,796,753
Interest on funds purchased 84,812 176,278 365,126 473,672
Interest on other short-term borrowings 14,596 22,123 54,617 66,742
Interest on long-term debt 189,370 142,829 549,680 386,854
------------ ------------ ------------ ------------
Total interest expense 706,115 992,766 2,455,887 2,724,021
------------ ------------ ------------ ------------
Net Interest Income 803,829 771,450 2,432,589 2,323,073
Provision for loan losses 80,157 30,540 187,072 80,525
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 723,672 740,910 2,245,517 2,242,548
------------ ------------ ------------ ------------
Noninterest Income
Trust and investment management income 119,786 120,184 368,880 372,538
Service charges on deposit accounts 129,142 116,875 374,753 340,730
Other charges and fees 61,316 56,291 174,386 155,800
Mortgage production related income 43,058 23,809 127,755 62,975
Mortgage servicing related income 829 7,906 4,868 23,319
Credit card and other fees 28,655 24,250 84,211 70,719
Retail investment services 26,802 24,022 78,845 85,370
Investment banking income 33,422 35,972 66,925 90,964
Trading account profits and commissions 30,048 4,924 84,637 15,495
Other noninterest income 41,183 33,586 111,867 102,338
Securities gains (losses) 36,161 (586) 121,006 7,807
------------ ------------ ------------ ------------
Total noninterest income 550,402 447,233 1,598,133 1,328,055
------------ ------------ ------------ ------------
Noninterest Expense
Salaries and other compensation 401,846 361,411 1,161,342 1,097,747
Employee benefits 45,527 39,488 150,608 137,823
Net occupancy expense 55,080 51,915 156,862 151,865
Equipment expense 49,907 47,191 138,796 149,496
Outside processing and software 51,639 42,385 142,122 128,384
Marketing and customer development 25,320 25,315 71,308 75,472
Merger-related expenses - 8,255 - 40,071
Amortization of intangible assets 8,413 8,889 37,697 26,660
Other noninterest expense 139,080 121,721 424,612 323,151
------------ ------------ ------------ ------------
Total noninterest expense 776,812 706,570 2,283,347 2,130,669
------------ ------------ ------------ ------------
Income before provision for income taxes and
extraordinary loss 497,262 481,573 1,560,303 1,439,934
Provision for income taxes 163,118 154,753 523,664 476,206
------------ ------------ ------------ ------------
Income before extraordinary loss 334,144 326,820 1,036,639 963,728
Extraordinary loss, net of taxes - - 17,824 -
------------ ------------ ------------ ------------
Net Income $ 334,144 $ 326,820 $ 1,018,815 $ 963,728
============ ============ ============ ============
Average common shares - diluted 289,601,031 298,558,479 292,347,478 302,464,897
Average common shares - basic 285,570,284 295,574,838 288,394,870 299,326,891
Net income per average common share - diluted
Income before extraordinary loss $ 1.15 $ 1.10 $ 3.54 $ 3.19
Extraordinary loss, net of taxes - - 0.06 -
------------ ------------ ------------ ------------
Net income $ 1.15 $ 1.10 $ 3.48 $ 3.19
============ ============ ============ ============
Net income per average common share - basic
Income before extraordinary loss $ 1.17 $ 1.11 $ 3.59 $ 3.22
Extraordinary loss, net of taxes - - 0.06 -
------------ ------------ ------------ ------------
Net income $ 1.17 $ 1.11 $ 3.53 $ 3.22
============ ============ ============ ============
(1) Includes dividends on common stock of
The Coca-Cola Company 8,688 8,205 26,064 24,616
See notes to consolidated financial statements
3
Consolidated Balance Sheets
---------------------------
September 30 December 31 September 30
(Dollars in thousands) (Unaudited) 2001 2000 2000
----------------- ----------------- -----------------
Assets
Cash and due from banks $ 3,608,003 $ 4,110,489 $ 3,200,930
Interest-bearing deposits in other banks 104,627 13,835 10,410
Trading account 1,550,883 1,105,848 913,787
Securities available for sale (1) 18,493,304 18,810,311 17,098,832
Funds sold 1,415,846 1,267,028 1,427,318
Loans held for sale 3,254,854 1,759,281 1,495,836
Loans 69,630,249 72,239,820 72,113,649
Allowance for loan losses (866,353) (874,547) (874,490)
------------- ------------- -------------
Net loans 68,763,896 71,365,273 71,239,159
Premises and equipment 1,589,726 1,629,071 1,618,907
Intangible assets 858,073 810,860 812,079
Customers' acceptance liability 64,468 184,157 177,504
Other assets 3,558,355 2,604,221 2,719,990
------------- ------------- -------------
Total assets $ 103,262,035 $ 103,660,374 $ 100,714,752
============= ============= =============
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 13,023,697 $ 15,064,017 $ 13,060,887
Interest-bearing consumer and commercial deposits 44,192,944 41,572,310 40,448,398
------------- ------------- -------------
Total consumer and commercial deposits 57,216,641 56,636,327 53,509,285
Brokered deposits 2,544,652 3,179,100 4,488,000
Foreign deposits 3,364,761 9,717,910 11,155,585
------------- ------------- -------------
Total deposits 63,126,054 69,533,337 69,152,870
Funds purchased 10,242,725 10,895,944 9,301,754
Other short-term borrowings 2,924,641 1,761,985 2,019,907
Long-term debt 12,293,390 7,895,430 7,284,903
Guaranteed preferred beneficial interests in debentures 1,050,000 1,050,000 1,050,000
Acceptances outstanding 64,468 184,157 177,504
Other liabilities 5,360,858 4,100,313 4,030,011
------------- ------------- -------------
Total liabilities 95,062,136 95,421,166 93,016,949
------------- ------------- -------------
Preferred stock, no par value; 50,000,000 shares
authorized; none issued - - -
Common stock, $1.00 par value 294,163 323,163 323,163
Additional paid in capital 1,262,518 1,274,416 1,269,792
Retained earnings 5,238,398 6,312,044 6,090,868
Treasury stock and other (316,709) (1,613,189) (1,551,714)
------------- ------------- -------------
Realized shareholders' equity 6,478,370 6,296,434 6,132,109
Accumulated other comprehensive income 1,721,529 1,942,774 1,565,694
------------- ------------- -------------
Total shareholders' equity 8,199,899 8,239,208 7,697,803
------------- ------------- -------------
Total liabilities and shareholders' equity $ 103,262,035 $ 103,660,374 $ 100,714,752
============= ============= =============
Common shares outstanding 288,741,890 296,266,329 297,791,574
Common shares authorized 750,000,000 750,000,000 750,000,000
Treasury shares of common stock 5,420,867 26,896,428 25,371,183
(1) Includes net unrealized gains on securities available for sale $ 2,761,050 $ 3,048,313 $ 2,461,858
See notes to consolidated financial statements
4
Consolidated Statements of Cash Flows
-------------------------------------
Nine Months Ended
September 30
-------------------------------------------------
(Dollars in thousands) (Unaudited) 2001 2000
----------------------- --------------------
Cash flows from operating activities:
Net income $ 1,018,815 $ 963,728
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Extraordinary loss on early extinguishment of debt, net of taxes 17,824 -
Depreciation, amortization and accretion 260,841 225,334
Provisions for loan losses and foreclosed property 187,350 80,812
Amortization of compensation element of restricted stock 4,027 6,654
Securities gains (121,006) (7,807)
Net gain on sale of assets (6,025) (9,511)
Originated loans held for sale (14,862,981) (7,004,124)
Sales of loans held for sale 13,367,408 7,040,074
Net increase in accrued interest receivable,
prepaid expenses and other assets (1,721,510) (1,383,964)
Net increase in accrued interest payable,
accrued expenses and other liabilities 1,326,561 647,772
--------------- --------------
Net cash (used in) provided by operating activities (528,696) $ 558,968
--------------- --------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 2,175,430 1,760,361
Proceeds from sales of securities available for sale 4,404,963 857,153
Purchases of securities available for sale (4,539,749) (1,470,717)
Net increase in loans (91,078) (6,422,266)
Proceeds from sale of loans 667,734 238,566
Capital expenditures (60,691) (96,677)
Proceeds from the sale of other assets 28,370 30,330
Loan recoveries 39,457 45,255
--------------- --------------
Net cash provided by (used in) investing activities 2,624,436 (5,057,995)
--------------- --------------
Cash flows from financing activities:
Net (decrease) increase in deposits (6,407,283) 9,052,341
Net increase (decrease) in funds purchased
and other short-term borrowings 509,437 (6,849,266)
Proceeds from the issuance of long-term debt 6,413,281 3,440,444
Repayment of long-term debt (2,033,145) (1,122,887)
Proceeds from the exercise of stock options 16,187 8,584
Proceeds from stock issuance 17,497 18,579
Proceeds used in the acquisition of stock (526,230) (595,265)
Dividends paid (348,360) (334,211)
--------------- --------------
Net cash (used in) provided by financing activities (2,358,616) 3,618,319
--------------- --------------
Net decrease in cash and cash equivalents (262,876) (880,708)
Cash and cash equivalents at beginning of year 5,391,352 5,519,366
--------------- --------------
Cash and cash equivalents at end of period $ 5,128,476 $ 4,638,658
=============== ==============
Supplemental Disclosure
Interest paid $ 2,512,141 $ 2,622,071
Income taxes paid 117,646 432,938
Non-cash impact of securitizing loans 1,903,518 -
Non-cash impact of STAR Systems Inc. sale 52,919 -
See notes to consolidated financial statements
5
Consolidated Statements of Shareholders' Equity
-----------------------------------------------
Accumulated
Additional Treasury Other
Common Paid in Retained Stock and Comprehensive
(Dollars in thousands) (Unaudited) Stock Capital Earnings Other* Income Total
--------------------------------------------------------------------------------------
Balance, January 1, 2000 $ 323,163 $ 1,293,387 $ 5,461,351 $ (1,013,861) $ 1,562,822 $ 7,626,862
Net income - - 963,728 - - 963,728
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - 2,872 2,872
---------------
Total comprehensive income 966,600
Cash dividends declared, $1.11 per share - - (334,211) - - (334,211)
Exercise of stock options - (17,487) - 26,071 - 8,584
Acquisition of treasury stock - - - (595,265) - (595,265)
Restricted stock activity - (682) - 682 - -
Amortization of compensation element
of restricted stock - - - 6,654 - 6,654
Issuance of stock for employee benefit plans - (5,426) - 24,005 - 18,579
--------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 323,163 $ 1,269,792 $ 6,090,868 $ (1,551,714) $ 1,565,694 $ 7,697,803
======================================================================================
Balance, January 1, 2001 $ 323,163 $ 1,274,416 $ 6,312,044 $ (1,613,189) $ 1,942,774 $ 8,239,208
Net income - - 1,018,815 - - 1,018,815
Other comprehensive income:
Adoption of SFAS No. 133 - - - - (10,560) (10,560)
Change in unrealized gains (losses) on
derivatives, net of taxes - - - - (62,602) (62,602)
Change in unrealized gains (losses) on
securities, net of taxes - - - - (148,083) (148,083)
---------------
Total comprehensive income 797,570
Cash dividends declared, $1.20 per share - - (348,360) - - (348,360)
Exercise of stock options - (12,528) - 28,715 - 16,187
Acquisition of treasury stock - - - (526,230) - (526,230)
Retirement of treasury stock (29,000) - (1,744,101) 1,773,101 - -
Restricted stock activity - (249) - 249 - -
Amortization of compensation element
of restricted stock - - - 4,027 - 4,027
Issuance of stock for employee benefit plans - 879 - 16,618 - 17,497
--------------------------------------------------------------------------------------
Balance, September 30, 2001 $ 294,163 $ 1,262,518 $ 5,238,398 $ (316,709) $ 1,721,529 $ 8,199,899
======================================================================================
* Balance at September 30, 2000 includes $1,504,501 for treasury stock and
$47,213 for compensation element of restricted stock.
Balance at September 30, 2001 includes $280,267 for treasury stock and
$36,442 for compensation element of restricted stock.
See notes to consolidated financial statements
6
Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------
Note 1 - Accounting Policies
The consolidated interim financial statements of
SunTrust Banks, Inc. ("SunTrust" or "Company") are unaudited. All significant
intercompany accounts and transactions have been eliminated. These financial
statements should be read in conjunction with the Annual Report on Form 10-K for
the year ended December 31, 2000. Certain reclassifications have been made to
prior year amounts to conform with the current year presentation.
Note 2 - Acquisitions
On September 25, 2001, SunTrust entered into a purchase agreement with
Huntington Bancshares Incorporated to acquire the Florida banking franchise of
Huntington National Bank. The Company will acquire Huntington's retail, small
business, commercial, treasury management and investment-related businesses and
plans to integrate the franchise into its existing Florida banking organization.
This transaction is expected to close in February of 2002, at which time the
final purchase price will be determined.
On July 27, 2001, SunTrust completed an agreement to purchase the institutional
business of The Robinson-Humphrey Company, LLC from Citigroup's Salomon Smith
Barney unit for approximately $11.9 million in cash. The acquisition did not
have a material effect on the consolidated financial statements.
On May 14, 2001, SunTrust announced a proposal to acquire Wachovia Corporation.
The proposal was subsequently withdrawn following Wachovia shareholders' proxy
vote on August 3, 2001 approving a merger with First Union Corporation. During
the third quarter of 2001, SunTrust recorded $20.2 million of net-of-tax
expenses, or $.07 per diluted share, related to the proposed Wachovia merger.
On March 28, 2001, the Company acquired Asset Management Advisors Holdings,
Inc., a Jupiter, Florida based specialized wealth management firm. The
acquisition was accounted for as a purchase with $22.0 million of cash tendered
as consideration. The acquisition did not have a material effect on the
consolidated financial statements.
Note 3 - Recent Accounting Developments
In July of 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 establishes accounting and reporting standards for business combinations.
This Statement eliminates the use of the pooling-of-interest method of
accounting for business combinations, requiring future business combinations to
be accounted for using the purchase method of accounting. Additionally, SFAS 141
enhances the disclosures related to business combinations and requires that all
intangible assets acquired in a business combination be reported separately from
goodwill. These intangible assets must then be assigned to a specifically
identified reporting unit and assigned a useful life. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001. This
Statement also applies to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001, or later. It
does not appear the Statement will have a material impact on the Company's
financial position or results of operations.
SFAS 142 establishes accounting and reporting standards for goodwill and other
intangible assets. With the adoption of this Statement, goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a two step
fair-value based test. Additionally, SFAS 142 enhances the disclosures related
to goodwill and intangible assets. SunTrust will adopt SFAS 142, in its
entirety, effective January 1, 2002. Goodwill currently carried on the balance
sheet will be subject to an initial assessment for impairment to be completed by
the second quarter of 2002. Year-to-date
7
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
September 30, 2001 earnings included net-of-tax amortization of goodwill
totaling $29.2 million. SunTrust is in the process of evaluating the impact that
the adoption of this Statement will have on its financial position and results
of operations.
Note 4 - Guaranteed Preferred Beneficial Interests in Debentures
SunTrust has established special purpose trusts, which collectively have issued
$1,050 million in trust preferred securities as of September 30, 2001 and an
additional $300 million in October of 2001. The proceeds from these issuances,
together with the proceeds of the related issuances of common securities of the
trusts, were invested in junior subordinated deferrable interest debentures of
SunTrust. The sole assets of these special purpose trusts are the debentures.
These debentures rank junior to the senior and subordinated debt of the issuing
company. SunTrust owns all of the common securities of the special purpose
trusts. The preferred securities issued by the trusts rank senior to the trusts'
common securities. The Company's obligations under the debentures, the
indentures, the relevant trust agreements and the guarantees, in the aggregate,
constitute a full and unconditional guarantee by SunTrust of the obligations of
the trusts under the trust preferred securities and rank subordinate and junior
in right of payment to all liabilities of the Company. The trust preferred
securities may be called prior to maturity at the option of SunTrust.
Note 5 - Loan Securitizations
During the first quarter of 2001, SunTrust transferred $1,903 million of single
family mortgages to securities available for sale in two securitization
transactions. These securities are maintained in the Company's available for
sale securities portfolio at fair market value based on quoted market prices.
There were no additional loan securization transactions during the second or
third quarter of 2001.
Note 6 - Extraordinary Loss
During the second quarter of 2001, the Company recorded an extraordinary loss of
$17.8 million, net of taxes of $9.6 million, for the early extinguishment of
$1.3 billion in long-term debt.
Note 7 - Comprehensive Income
The Company's comprehensive income, which includes certain transactions and
other economic events that bypass the income statement, consists of net income,
unrealized gains and losses on securities available for sale and the impact of
cash flow hedges, net of income taxes.
8
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Comprehensive income for the nine months ended September 30, 2001 and 2000 is
calculated as follows:
(Dollars in thousands)
2001 2000
---- ----
Unrealized (loss) gain on available for sale securities, net,
recognized in other comprehensive income:
Before Income Tax $ (227,820) $ (65,847)
Income Tax (79,737) (68,719)
---------- ---------
Net of Income Tax $ (148,083) $ 2,872
=========== =========
Amounts reported in net income:
Gain on sale of securities $ 121,006 $ 7,807
Net (accretion) amortization (11,310) (11,327)
---------- ---------
Reclassification adjustment 109,696 (3,520)
Income tax (expense) benefit (38,394) 3,674
---------- ---------
Reclassification adjustment, net of tax $ 71,302 $ 154
=========== =========
Unrealized loss on available for sale securities
arising during period, net of tax $ (76,781) $ 3,026
Reclassification adjustment, net of tax (71,302) (154)
---------- ---------
Net unrealized (loss) gain on available for sale securities
recognized in other comprehensive income $ (148,083) $ 2,872
=========== =========
Unrealized loss on derivative financial instruments, net,
recognized in other comprehensive income:
Before Income Tax $ (112,557) $ -
Income Tax 39,395 -
---------- ---------
Net of Income Tax $ (73,162) $ -
=========== =========
Cumulative effect of change in accounting principle $ (16,246) $ -
Income tax benefit 5,686 -
---------- ---------
Cumulative effect of change in accounting priniciple,
net of tax $ (10,560) $ -
=========== =========
Reclassification of losses from other comprehensive
income to earnings $ 9,109 $ -
Income tax expense (3,188) -
---------- ---------
Reclassification adjustment, net of tax $ 5,921 $ -
=========== =========
Unrealized loss on derivative financial instruments
arising during period, net of tax $ (68,523) $ -
Reclassification adjustment, net of tax 5,921 -
---------- ---------
Net unrealized loss on derivative instruments
recognized in other comprehensive income $ (62,602) $ -
=========== =========
Total unrealized (losses) gains recognized in
other comprehensive income $ (221,245) $ 2,872
Net income 1,018,815 963,728
---------- ---------
Total comprehensive income $ 797,570 $ 966,600
=========== =========
9
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Note 8 - Earnings Per Share Reconciliation
Net income is the same in the calculation of basic and diluted EPS. Shares of
3.2 million and 4.4 million for the periods ended September 30, 2001 and 2000,
respectively, were excluded in the computation of diluted EPS because they would
have been antidilutive. A reconciliation of the difference between average basic
common shares outstanding and average diluted common shares outstanding for the
three and nine months ended September 30, 2001 and 2000 is included in the
following table.
Computation of Per Share Earnings
(In thousands, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------------- ---------------------------------------
2001 2000 2001 2000
------------------ ---------------- ------------------ -----------------
Diluted
- -------
Income before extraordinary loss $ 334,144 $ 326,820 $ 1,036,639 $ 963,728
Extraordinary loss, net of taxes - - 17,824 -
--------- --------- ----------- ---------
Net income $ 334,144 $ 326,820 $ 1,018,815 $ 963,728
--------- --------- ----------- ---------
Average common shares outstanding 285,570 295,575 288,395 299,327
Effect of dilutive securities:
Stock options 2,103 1,158 2,054 1,339
Performance restricted stock 1,928 1,825 1,898 1,799
--------- --------- ----------- ---------
Average diluted common shares 289,601 298,558 292,347 302,465
--------- --------- ----------- ---------
Earnings per common share - diluted:
Income before extraordinary loss $ 1.15 $ 1.10 $ 3.54 $ 3.19
Extraordinary loss - - 0.06 -
--------- --------- ----------- ---------
Net income $ 1.15 $ 1.10 $ 3.48 $ 3.19
========= ========= =========== =========
Basic
- -----
Income before extraordinary loss $ 334,144 $ 326,820 $ 1,036,639 $ 963,728
Extraordinary loss, net of taxes - - 17,824 -
--------- --------- ----------- ---------
Net income $ 334,144 $ 326,820 $ 1,018,815 $ 963,728
--------- --------- ----------- ---------
Average common shares 285,570 295,575 288,395 299,327
--------- --------- ----------- ---------
Earnings per common share - basic:
Income before extraordinary loss $ 1.17 $ 1.11 $ 3.59 $ 3.22
Extraordinary loss - - 0.06 -
--------- --------- ----------- ---------
Net income $ 1.17 $ 1.11 $ 3.53 $ 3.22
========= ========= =========== =========
10
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Note 9 - Business Segment Reporting
The Company's prior business segment disclosures have been aligned with its
geographic regions as defined by its former multiple bank charters. During 2000,
as a result of the consolidation of its multiple bank charters into a single
legal entity, the Company began to redefine its operating model and created a
line of business management structure to overlay its former multiple bank
management structure. Beginning in January 2001, the Company implemented
significant changes to its internal management reporting system to begin to
measure and manage certain business activities by line of business. The Lines of
Business are defined as follows:
Retail
Retail includes loans, deposits and other fee based services for retail and
small business clients. The Retail Line of Business also includes the branch
office and ATM networks of the Company.
Commercial
Commercial includes loans, deposits and other fee based services for business
clients generally with total annual revenues from $5 million to $250 million.
Corporate and Investment Banking
Corporate and Investment Banking includes loans, deposits and other fee based
services for national and large business clients generally with total annual
revenues in excess of $250 million. Corporate and Investment Banking also
includes the management of corporate leasing, debt and equity capital markets
and international banking services.
Mortgage
Mortgage includes the investment in residential mortgage loans and the
production, sale and service of secondary residential mortgage loans.
Private Client Services
Private Client Services includes personal and institutional trust and investment
management services, retail investment services and management of affluent
clients' financial resources including loans, deposits and other fee based
services.
Corporate/Other
Corporate/Other includes the investment securities portfolio, long-term debt,
capital, derivative instruments, short-term liquidity and funding activities,
balance sheet risk management, office premises and certain support activities
not currently allocated to the aforementioned Lines of Business. Any
transactions between the separate Lines of Business not already eliminated in
the results of the Lines of Business are also reflected in the Corporate/Other
Line of Business.
11
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Unlike financial accounting, there is no comprehensive authoritative body of
guidance for management accounting practices equivalent to generally accepted
accounting principles. Therefore, the disclosure of performance of the business
segments is not necessarily comparable with similar information presented by any
other financial institution.
The Company utilizes a matched maturity funds transfer pricing methodology to
transfer the interest rate risk of all assets and liabilities to the Corporate
Treasury area which manages the interest rate risk of the Company. Differences
in the aggregate amounts of funds charges and credits that are transfer priced
are reflected in the Corporate/Other Line of Business segment. A system of
internal credit transfers is utilized to recognize supportive business services
across Lines of Business. The net results of these credits are reflected in each
Line of Business segment. The cost of operating office premises is charged to
the Lines of Business by use of an internal cost transfer process. Allocations
of certain administrative support expenses and customer transaction processing
expenses are also reflected in each Line of Business segment. The offset to
these expense allocations, as well as the amount of any unallocated expenses, is
reported in the Corporate/Other Line of Business segment. The Company also
utilizes an internal credit risk transfer pricing methodology (the "credit risk
premium") which creates a current period financial charge against interest
income to each Line of Business based on the estimated credit risk-adjusted
return on loans and leases. The offset to the aggregate credit risk premium
charges is matched against the Company's current provision for loan and lease
losses with any difference reported in the Corporate/Other segment. The
provision for income taxes is also reported in the Corporate/Other segment.
The Company is currently in the process of building and implementing further
enhancements to its internal management reporting system which are expected to
be implemented throughout 2001 and 2002. Once complete, the activities reported
for each Line of Business segment are expected to include: assets, liabilities
and attributed economic capital; matched maturity funds transfer priced interest
income, net of credit risk premiums; direct non-interest income; internal credit
transfers between Lines of Business for supportive business services; and fully
absorbed expenses. The internal management reporting system and the business
segment disclosures for each Line of Business do not currently include
attributed economic capital, nor fully absorbed expenses. Any amounts not
currently reported in each Line of Business segment are reported in the
Corporate/Other segment. The implementation of these enhancements to the
internal management reporting system is expected to materially affect the net
income disclosed for each segment.
Due to the significant nature of the changes implemented to the internal
management reporting system in 2001, it is not practical to conform prior year
financial data for the new business segments nor current year financial data for
the prior business segments for reporting. Therefore, the financial data is only
presented on a year-to-date basis and is not comparable to segment data
presented in previous filings.
12
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
The following table discloses selected financial information for SunTrust's new
reportable business segments for the nine months ended September 30, 2001.
Nine Months Ended September 30, 2001
------------------------------------------------------------------------------------------------
Corporate
and Private
Investment Client Corporate/
Retail Commercial Banking Mortgage Services Other Consolidated
------------------------------------------------------------------------------------------------
Average total assets 20,195,064 19,053,271 21,690,521 19,394,885 1,431,423 20,782,790 102,547,954
Average total liabilities 45,393,318 8,676,665 4,553,073 977,594 1,456,208 33,505,201 94,562,059
Average total equity - - - - - 7,985,895 7,985,895
------------------------------------------------------------------------------------------------
Net interest revenue (1) 1,232,302 419,958 159,323 167,011 37,730 259,853 2,276,177
Noninterest revenue 459,388 183,894 324,670 137,646 446,038 46,497 1,598,133
Noninterest expense 871,861 282,924 272,960 228,368 296,650 330,584 2,283,347
------------------------------------------------------------------------------------------------
Total contribution before taxes
and extraordinary loss 819,829 320,928 211,033 76,289 187,118 (24,234) 1,590,963
Provision for income taxes (2) - - - - - 554,324 554,324
------------------------------------------------------------------------------------------------
Income before extraordinary loss 819,829 320,928 211,033 76,289 187,118 (578,558) 1,036,639
Extraordinary loss, net of tax - - - - - 17,824 17,824
------------------------------------------------------------------------------------------------
Net income 819,829 320,928 211,033 76,289 187,118 (596,382) 1,018,815
================================================================================================
(1) Net interest income is fully taxable equivalent and is presented on a
matched maturity funds transfer price basis net of the credit risk premium
for the Lines of Business.
(2) Includes regular income tax provision and taxable-equivalent income
adjustment reversal of $30,660.
13
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
SunTrust Banks, Inc., the nation's ninth-largest commercial banking
organization, is a financial holding company with its headquarters in Atlanta,
Georgia. SunTrust's principal banking subsidiary, SunTrust Bank, offers a full
line of financial services for consumers and businesses through its branches
located primarily in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia
and the District of Columbia. In addition to traditional deposit, credit and
trust and investment services offered by SunTrust Bank, other SunTrust
subsidiaries provide mortgage banking, commercial equipment leasing,
credit-related insurance, asset management, securities brokerage and investment
banking services.
SunTrust has 1,128 full-service branches, including supermarket branches, and
continues to leverage technology to provide customers the convenience of banking
on the Internet, through 2,003 automated teller machines and via twenty-four
hour telebanking.
The following analysis of the financial performance of SunTrust for the third
quarter of 2001 should be read in conjunction with the financial statements,
notes and other information contained in this document. SunTrust has made, and
may continue to make, various forward-looking statements with respect to
financial and business matters. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties, all of which may change over
time. The actual results that are achieved could differ significantly from the
forward-looking statements contained in this document.
The results of operations for the nine months ended September 30, 2001 are not
indicative of the results that may be attained for any other period. In this
discussion, net interest income and the net interest margin are presented on a
taxable-equivalent basis and the ratios are presented on an annualized basis.
EARNINGS ANALYSIS
SunTrust reported earnings of $334.1 million and $1,018.8 million for the third
quarter and first nine months of 2001, an increase of $7.3 million, or 2.2%, and
$55.1 million, or 5.7%, compared to $326.8 million and $963.7 million in the
same periods last year. In the third quarter and first nine months of 2001,
results included $20.2 million in after-tax nonrecurring expenses associated
with the Company's proposal to acquire Wachovia. For the third quarter and first
nine months of 2000, results included after-tax merger-related charges of $5.4
million and $26.0 million. The following table reconciles reported diluted
earnings per share to operating diluted earnings per share for the three and
nine months ended of September 30, 2001 and 2000:
Three Months Nine Months
Ended September 30 Ended September 30
----------- ----------- ----------- -----------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Reported diluted earnings per share $ 1.15 $ 1.10 $ 3.48 $ 3.19
Merger-related expenses - 0.01 - 0.08
Wachovia proposal expenses 0.07 - 0.07 -
----------- ----------- ----------- -----------
Operating earnings per share $ 1.22 $ 1.11 $ 3.55 $ 3.27
=========== =========== =========== ===========
Net interest income increased $32.3 million, or 4.1%, and $110.9 million, or
4.7%, from the third quarter and first nine months of 2000 to the third quarter
and first nine months of 2001. This was primarily due to lower funding costs as
the Federal Reserve decreased the fed funds rate a total of 400 basis points
since September 30, 2000.
14
The loan loss provision increased $49.6 million, or 162.5%, over the third
quarter of 2000 and $106.5 million, or 132.3%, over the first nine months of
2000. The increase over the prior year's third quarter was primarily due to
increased charge-offs resulting from the continued economic slowdown.
Total noninterest income, excluding securities gains, increased $66.4 million,
or 14.8%, over the prior year's third quarter and $156.9 million, or 11.9%, over
the first nine months of 2000. Compared to the third quarter of 2000,
noninterest income included an increase of $25.1 million, or 510.2%, in trading
account profits and commissions, as the Company benefited from fees related to
increased customer derivative transactions due to the low interest rate
environment. Mortgage production related income continued to show strong growth
during the third quarter of 2001 as compared to the same period last year.
Mortgage production related income increased $19.2 million, or 80.8%, as the low
interest rate environment has led to significant increases in refinancing
activity during 2001.
Total noninterest expense, excluding merger-related charges and Wachovia
proposal expenses, increased $46.5 million, or 6.7%, over the third quarter of
2000 and $160.7 million, or 7.7%, over the first nine months of 2000. Included
in the overall increase was $17.5 million in One Bank initiatives resulting from
the continued system integration of customer based systems across the geographic
areas served by SunTrust Banks, Inc.
15
Selected Quarterly Financial Data Table 1
(Dollars in millions except per share data) Quarters
-------------------------------------------------------------------------------
2001 2000
----------------------------------------------- -----------------------------
3 2 1 4 3
--------------- ------------- ------------- ------------- -------------
Summary of Operations
Interest and dividend income $ 1,509.9 $ 1,634.7 $ 1,743.9 $ 1,798.3 $ 1,764.2
Interest expense 706.1 810.8 939.0 1,012.9 992.8
--------- --------- --------- --------- ---------
Net interest income 803.8 823.9 804.9 785.4 771.4
Provision for loan losses 80.2 39.6 67.3 53.5 30.5
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 723.6 784.3 737.6 731.9 740.9
Noninterest income(1) 550.4 521.8 525.9 445.6 447.2
Noninterest expense(2)(3)(4) 776.8 763.8 742.7 697.9 706.6
--------- --------- --------- --------- ---------
Income before provision for income
taxes and extraordinary loss 497.2 542.3 520.8 479.6 481.5
Provision for income taxes 163.1 177.3 183.3 149.2 154.7
--------- --------- --------- --------- ---------
Income before extraordinary loss 334.1 365.0 337.5 330.4 326.8
Extraordinary loss, net of taxes(5) - 17.8 - - -
--------- --------- --------- --------- ---------
Net income $ 334.1 $ 347.2 $ 337.5 $ 330.4 $ 326.8
========= ========= ========= ========= =========
Net interest income (taxable-equivalent) $ 813.9 $ 834.1 $ 815.2 $ 796.1 $ 781.5
Per common share
Diluted
Income before extraordinary loss $ 1.15 $ 1.25 $ 1.14 $ 1.11 $ 1.10
Extraordinary loss, net of taxes - 0.06 - - -
--------- --------- --------- --------- ---------
Net income 1.15 1.19 1.14 1.11 1.10
Basic
Income before extraordinary loss 1.17 1.27 1.16 1.13 1.11
Extraordinary loss, net of taxes - 0.06 - - -
--------- --------- --------- --------- ---------
Net income 1.17 1.21 1.16 1.13 1.11
Dividends declared 0.40 0.40 0.40 0.37 0.37
Book value 28.40 27.29 26.83 27.81 25.85
Market price
High 72.35 66.38 68.07 64.38 54.19
Low 60.10 59.25 57.29 41.63 45.63
Close 66.60 64.78 64.80 63.00 49.88
Selected Average Balances
Total assets $ 101,246.0 $ 103,194.2 $ 103,225.4 $ 101,246.0 $ 99,392.2
Earning assets 90,588.0 92,570.8 92,553.9 90,679.6 89,663.7
Loans 69,024.0 69,900.5 71,654.4 71,774.6 71,506.9
Consumer and commercial deposits 57,081.1 56,343.6 54,538.6 54,099.2 53,641.4
Brokered and foreign deposits 6,086.6 8,017.1 10,870.0 13,082.7 13,516.8
Realized shareholders' equity 6,305.4 6,208.8 6,264.6 6,140.5 6,012.8
Total shareholders' equity 7,996.1 7,873.4 8,089.2 7,844.4 7,487.4
Common shares - diluted (thousands) 289,601 291,677 295,832 296,461 298,558
Common shares - basic (thousands) 285,570 287,878 291,805 293,390 295,575
Financial Ratios
Return on average assets 1.34% 1.38% 1.36% 1.33% 1.34%
Return on average realized shareholders' equity(6) 21.02 22.43 21.85 21.40 21.62
Return on average total shareholders' equity 16.58 17.68 16.92 16.75 17.36
Net interest margin 3.56 3.61 3.57 3.49 3.47
(1) Includes securities gains of $33.0 and $27.4 million for the third and second quarters of 2001 related to the Company's
securities portfolio repositioning.
(2) Includes enhancements to customer based systems of $17.5, $14.7 and $7.0 million for the third, second and first quarters of
2001, respectively, related to the One Bank initiative.
(3) Includes merger-related expenses of $2.4 million and $8.3 million for the fourth and third quarters of 2000.
(4) Includes Wachovia proposal expenses of $32.0 million for the third quarter of 2001.
(5) Represents the loss on the Company's early extinguishment of long-term debt during the second quarter of 2001, net of $9.6
million in taxes.
(6) In this report, SunTrust presents a return on average realized shareholders' equity ratio that excludes net unrealized gains.
Due to its ownership of 48 million shares of common stock of The Coca-Cola Company, SunTrust believes this measure is more
indicative of its return on average shareholders' equity when comparing to other companies.
16
Consolidated Daily Average Balances, Income/Expense
and Average Yields Earned and Rates Paid
(Dollars in millions; yields on taxable-equivalent basis)
Quarter Ended
------------------------------------------------------------------------------------
September 30, 2001 June 30, 2001
--------------------------------------- -----------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
------------ ------------- ---------- -------------- ------------ -----------
Assets
Loans:(1)
Taxable $ 67,894.6 $ 1,162.1 6.79% $ 68,810.9 $1,258.7 7.34%
Tax-exempt(2) 1,129.4 19.1 6.71 1,089.6 19.8 7.28
---------- --------- ----- ---------- -------- ----
Total loans 69,024.0 1,181.2 6.79 69,900.5 1,278.5 7.34
Securities available for sale:
Taxable 15,152.8 248.9 6.52 16,756.8 278.2 6.66
Tax-exempt(2) 447.8 9.1 8.10 455.9 9.4 8.27
---------- --------- ----- ---------- -------- ----
Total securities available for sale 15,600.6 258.0 6.56 17,212.7 287.6 6.70
Funds sold 1,271.6 11.6 3.62 1,176.4 13.4 4.56
Loans held for sale 3,182.5 57.5 7.16 2,829.8 51.9 7.36
Other short-term investments(2) 1,509.3 11.7 3.08 1,451.4 13.5 3.75
---------- --------- ----- ---------- -------- ----
Total earning assets 90,588.0 1,520.0 6.66 92,570.8 1,644.9 7.13
Allowance for loan losses (872.8) (868.9)
Cash and due from banks 3,315.2 3,373.7
Premises and equipment 1,594.2 1,601.4
Other assets 4,019.0 3,955.5
Unrealized gains on securities
available for sale 2,602.4 2,561.7
---------- --------- ----- ---------- -------- ----
Total assets $101,246.0 $103,194.2
========== ========= ===== ========== ======== ====
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $ 25,254.1 $ 160.5 2.52% $ 23,779.9 $ 173.1 2.92%
Savings 6,004.6 40.1 2.65 6,024.8 46.4 3.09
Consumer time 8,870.2 112.1 5.01 9,217.8 123.3 5.37
Other time 3,783.0 47.2 4.95 3,829.4 52.7 5.52
---------- --------- ----- ---------- -------- ----
Total interest bearing consumer
and commercial deposits 43,911.9 359.9 3.25 42,851.9 395.5 3.70
Brokered deposits 2,797.6 28.0 3.97 2,265.6 26.8 4.74
Foreign deposits 3,289.0 29.4 3.55 5,751.5 62.6 4.37
---------- --------- ----- ---------- -------- ----
Total interest-bearing deposits 49,998.5 417.3 3.31 50,869.0 484.9 3.82
Funds purchased 10,616.7 84.8 3.17 12,367.6 125.9 4.08
Other short-term borrowings 1,702.1 14.6 3.40 1,367.1 16.0 4.68
Long-term debt 12,926.0 189.4 5.81 12,486.2 184.0 5.91
---------- --------- ----- ---------- -------- ----
Total interest-bearing liabilities 75,243.3 706.1 3.72 77,089.9 810.8 4.22
Noninterest-bearing deposits 13,169.2 13,491.7
Other liabilities 4,837.4 4,739.2
Realized shareholders' equity 6,305.4 6,208.8
Accumulated other comprehensive income 1,690.7 1,664.6
---------- --------- ----- ---------- -------- ----
Total liabilities and shareholders' equity $101,246.0 $103,194.2
========== ========= ===== ========== ======== ====
Interest rate spread 2.94% 2.91%
---------- --------- ----- ---------- -------- ----
Net Interest Income $ 813.9 $ 834.1
---------- --------- ----- ---------- -------- ----
Net Interest Margin(3) 3.56% 3.61%
---------- --------- ----- ---------- -------- ----
(1) Interest income includes loan fees of $36.9, $35.6, and $33.5 million in
the quarters ended September 30 and June 30, 2001 and September 30, 2000,
and $108.5 and $98.8 million in the nine months ended September 30, 2001
and 2000. Nonaccrual loans are included in average balances and income on
such loans, if recognized, is recorded on a cash basis.
(2) Interest income includes the effects of taxable-equivalent adjustments
(reduced by the nondeductible portion of interest expense) using a federal
income tax rate of 35% and, where applicable, state income taxes, to
increase tax-exempt interest income to a taxable-equivalent basis. The net
taxable-equivalent adjustment amounts included in the above table
aggregated $10.1, $10.2, and $10.1 million in the quarters ended September
30 and June 30, 2001 and September 30, 2000 and $30.7 and $29.3 million for
the nine months ended September 30, 2001 and 2000.
17
Table 2
Quarter Ended Nine Months Ended
- ------------------------------------------ ------------------------------------------------------------------------------------
September 30, 2000 September 30, 2001 September 30, 2000
- ------------------------------------------ ----------------------------------------- -----------------------------------------
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates Balances Expense Rates
- --------------- ------------ ----------- -------------- ------------ ----------- -------------- ------------ -----------
$ 70,427.3 $1,442.1 8.15% $ 69,076.1 $3,805.7 7.37% $ 68,405.0 $4,090.7 7.99%
1,079.6 21.1 7.79 1,107.2 59.8 7.22 1,058.3 60.5 7.64
- ----------------------------------------- ---------------------------------------- ----------------------------------------
71,506.9 1,463.2 8.14 70,183.3 3,865.5 7.36 69,463.3 4,151.2 7.98
14,146.9 239.9 6.75 15,940.5 797.1 6.69 14,552.8 730.2 6.70
456.5 8.7 7.59 451.1 27.9 8.27 478.3 27.0 7.55
- ----------------------------------------- ---------------------------------------- ----------------------------------------
14,603.4 248.6 6.77 16,391.6 825.0 6.73 15,031.1 757.2 6.73
1,587.2 26.7 6.68 1,269.4 43.9 4.62 1,478.5 70.5 6.37
1,395.0 28.5 8.12 2,671.2 145.9 7.31 1,370.7 77.3 7.53
571.1 7.3 5.11 1,381.5 38.8 3.76 570.1 20.1 4.71
- ----------------------------------------- ---------------------------------------- ----------------------------------------
89,663.6 1,774.3 7.87 91,897.0 4,919.1 7.16 87,913.7 5,076.3 7.71
(868.9) (879.4) (872.5)
3,083.6 3,336.9 3,266.5
1,628.1 1,604.2 1,627.8
3,520.7 3,912.9 3,262.0
2,365.1 2,676.4 2,243.9
- ----------------------------------------- ---------------------------------------- ----------------------------------------
$ 99,392.2 $102,548.0 $ 97,441.4
========================================= ======================================== ========================================
$ 19,904.4 $ 163.2 3.26% $ 23,417.2 $ 507.0 2.89% $ 20,164.5 $ 465.0 3.08%
6,324.0 58.8 3.70 6,092.7 143.1 3.14 6,477.0 167.7 3.46
10,151.8 141.0 5.53 9,273.1 371.1 5.35 9,925.8 387.0 5.21
4,221.4 62.0 5.84 3,947.5 162.1 5.49 4,001.5 169.5 5.66
- ----------------------------------------- ---------------------------------------- ----------------------------------------
40,601.6 425.0 4.16 42,730.5 1,183.3 3.70 40,568.8 1,189.2 3.92
3,815.3 65.0 6.77 2,519.0 94.0 4.99 3,056.5 147.3 6.44
9,701.5 161.5 6.62 5,788.1 209.2 4.83 9,822.7 460.2 6.26
- ----------------------------------------- ---------------------------------------- ----------------------------------------
54,118.4 651.5 4.79 51,037.6 1,486.5 3.89 53,448.0 1,796.7 4.49
11,050.9 176.3 6.35 11,601.9 365.1 4.21 10,596.4 473.7 5.97
1,365.8 22.1 6.44 1,597.7 54.6 4.57 1,438.0 66.7 6.20
8,378.4 142.9 6.78 12,371.4 549.7 5.94 7,802.8 386.9 6.62
- ----------------------------------------- ---------------------------------------- ----------------------------------------
74,913.5 992.8 5.27 76,608.6 2,455.9 4.29 73,285.2 2,724.0 4.97
13,039.7 13,266.5 13,079.3
3,951.6 4,687.0 3,690.0
6,012.8 6,259.7 5,995.1
1,474.6 1,726.2 1,391.8
- ----------------------------------------- ---------------------------------------- ----------------------------------------
$ 99,392.2 $102,548.0 $ 97,441.4
========================================= ======================================== ========================================
2.60% 2.87% 2.74%
- ----------------------------------------- ---------------------------------------- ----------------------------------------
$ 781.5 $2,463.2 $2,352.3
- ----------------------------------------- ---------------------------------------- ----------------------------------------
3.47% 3.58% 3.57%
- ----------------------------------------- ---------------------------------------- ----------------------------------------
(3) Derivative instruments used to help balance SunTrust's interest-sensitivity
position decreased net interest income $0.7 million in the quarter ended
September 30, 2000 and decreased net interest income $0.6 million in the
nine months ended September 30, 2000. Without these swaps, the net interest
margin would have been 3.47% and 3.58% in the quarter and nine months ended
September 30, 2000, respectively.
18
Interest Rate Risk. The normal course of business activity exposes SunTrust to
interest rate risk. Fluctuations in interest rates may result in changes in the
fair market value of the Company's financial instruments, cash flows and net
interest income. SunTrust's asset/liability management process manages the
Company's interest rate risk position. The objective of this process is the
optimization of the Company's financial position, liquidity and net interest
income, while limiting the volatility to net interest income from changes in
interest rates.
SunTrust uses a simulation modeling process to measure interest rate risk and
evaluate potential strategies. These simulations incorporate assumptions
regarding balance sheet growth and mix, pricing, and the repricing and maturity
characteristics of the existing and projected balance sheet. Other
interest-rate-related risks such as prepayment, basis and option risk are also
considered. Simulation results quantify interest rate risk under various
interest rate scenarios. Senior management regularly reviews the overall
interest rate risk position and develops and implements strategies to manage the
risk.
Management estimates the Company's net interest income for the next twelve
months would decline 0.3% under a gradual increase in interest rates of 100
basis points, versus the projection under stable rates. Net interest income
would increase by 0.3% under a gradual decrease in interest rates of 100 basis
points, versus the projection under stable rates. As rates continued to decline
during 2001, Management began repositioning the balance sheet from a liability
sensitive position to a more neutral position through portfolio sales and
long-term funding.
The projections of interest rate risk do not necessarily include certain actions
that management may undertake to manage this risk in response to anticipated
changes in interest rates.
Net Interest Income/Margin. SunTrust's net interest margin was 3.58% for the
first nine months of 2001, an increase of 1 basis point from the first nine
months of 2000. Compared to the first nine months of 2000, the rate on earning
assets decreased 55 basis points to 7.16% in the first nine months of 2001 and
the rate on interest bearing liabilities decreased 68 basis points to 4.29%
primarily due to the declining interest rate environment.
As part of its on-going balance sheet management, the Company continues to take
steps to obtain alternative lower cost funding sources such as developing
initiatives to grow retail deposits to maximize net interest income throughout
2001. During the first quarter of 2001, the Company initiated a campaign to
attract money market accounts. As a result, average money market accounts have
grown from $12.0 billion for the third quarter of 2000 to $16.9 billion for the
third quarter of 2001. In addition the Company has reduced its reliance on
purchased and foreign funds by securing long-term financing in the current low
rate environment.
In the third quarter of 2001, the Company continued to take advantage of the
lower interest rate environment by repositioning its securities portfolio. The
sale of $852 million of investment securities generated a gain of $33.0 million.
The sold securities were replaced with $166 million of shorter-term fixed rate
securities and $589 million of shorter-term floating rate securities. This
initiative continues to reduce the average life of the investment portfolio. The
Company will consider future repositioning opportunities as the interest rate
environment permits.
Interest income that SunTrust was unable to recognize on nonperforming loans had
a negative impact of three and one basis points on the net interest margin in
the first nine months of 2001 and 2000, respectively.
Noninterest Income. Noninterest income in the third quarter of 2001 increased
$103.2 million, or 23.1% from the comparable period last year. In the third
quarter of 2001, the Company continued to reposition its securities portfolio by
shortening its average life. Securities gains of $33.0 million were recorded
during the quarter as a result of this strategic initiative. Mortgage production
related income increased $19.2 million, or 80.8%. Mortgage production was $6.0
billion for the third quarter of 2001, a 64.3% increase from $3.6 billion for
the
19
third quarter of 2000. The increase is due to the high volume of refinancing
activity continuing throughout the third quarter of 2001 as a result of the
lower interest rate environment. Also associated with the high volume of
refinancing activity, mortgage servicing related income decreased $7.1 million,
or 89.5%, due to accelerated amortization of mortgage servicing rights related
to increased prepayments. Service charges on deposits and other charges and fees
increased a combined $17.3 million, or 10.0% over the third quarter of 2000.
Increased usage of products and services, a more consistent pricing strategy and
a lower earnings credit rate resulted in the increase in these income items.
Included in credit card and other fees is debit card interchange income of $15.4
million for the third quarter of 2001 compared to $12.0 million in the same
period of 2000.
Trust and investment management income was flat compared to the third quarter of
2000. Fee income has been adversely impacted by the decline in the market value
of assets under management. The overall equity market is down approximately 21%
for the year; however, the market value of the assets under management is down
approximately 4% compared to December 31, 2000. The decline in assets under
management outperformed the overall market as a result of strong inflows of net
new business and the diversified investment strategies of the portfolio
managers.
Trading account profits and commissions increased $25.1 million, or 510.2%, over
the third quarter of 2000 while investment banking income decreased $2.6
million, or 7.1%, over the same period. The changes in these line items are
indicative of the continued volatility seen in the equity market, as well as the
changing interest rate environment throughout the first nine months of 2001.
Trading account profits are primarily generated from the sale of derivative
products to customers.
Other income included net gains on the sale of student loans of $0.7 million and
$3.8 million in the third quarter of 2001 and 2000, respectively.
Noninterest Income Table 3
(In millions)
Quarters
------------------------------------------------------------------
2001 2000
-------------------------------------- -------------------------
3 2 1 4 3
--------- ------------ ----------- ----------- ----------
Service charges on deposit accounts $ 129.1 $ 125.6 $ 120.0 $ 118.9 $ 116.9
Trust and investment management income 119.8 124.8 124.3 121.4 120.2
Other charges and fees 61.3 57.5 55.6 55.1 56.3
Mortgage production related income 43.1 53.0 31.7 27.1 23.8
Mortgage servicing related income 0.8 (2.7) 6.7 9.5 7.9
Investment banking income 33.4 19.4 14.1 20.3 36.0
Trading account profits and commissions 30.0 24.9 29.7 16.3 4.9
Credit card and other fees 28.7 30.0 25.6 24.9 24.2
Retail investment services 26.8 27.3 24.8 22.8 24.0
Other income 41.2 34.3 36.3 30.5 33.6
Securities gains (losses) 36.2 27.7 57.1 (1.2) (0.6)
--------- ------------ ----------- ----------- ----------
Total noninterest income $ 550.4 $ 521.8 $ 525.9 $ 445.6 $ 447.2
========= ============ =========== =========== ==========
20
Noninterest Expense. Noninterest expense increased $70.2 million, or 9.9% in the
third quarter of 2001 compared to the same period last year. Personnel expenses,
consisting of salaries, other compensation and employee benefits, increased
$46.5 million, or 11.6% from the earlier period. The majority of this increase
was a $25.6 million, or 30.9%, growth in other compensation due to increased
incentive payments related to mortgage production.
Also contributing to the $70.2 million increase was $32.0 million in expenses
associated with the Company's proposal to acquire Wachovia and $17.5 million
recorded in the third quarter of 2001 related to the Company's One Bank
initiative. The One Bank initiative is for enhancements to customer based
systems across its geographic footprint and is expected to yield operating
efficiencies in the future. Combined salaries and employee benefits increased
$9.3 million and consulting and legal increased $7.4 million due to the One Bank
initiative.
In the third quarter of 2000, merger-related expenses were primarily related to
accelerated depreciation and miscellaneous integration costs. There were no
additional merger-related expenses in 2001. The efficiency ratio improved from
57.5% in the second quarter of 2000 to 56.9% in the second quarter of 2001 due
to the Company's continued focus on efficiency and cost control projects.
Noninterest Expense Table 4
(In millions)
Quarters
-------------------------------------------------------------------
2001 2000
--------------------------------------- -------------------------
3 2 1 4 3
----------- ---------- ----------- ----------- -----------
Salaries $ 293.3 $ 285.8 $ 286.0 $ 282.0 $ 278.5
Other compensation 108.5 97.3 90.3 89.3 82.9
Employee benefits 45.5 48.4 56.7 37.2 39.5
Net occupancy expense 55.1 51.8 50.0 50.7 51.9
Outside processing and software 51.6 45.3 45.1 43.9 42.4
Equipment expense 49.9 44.3 44.5 44.2 47.2
Marketing and customer development 25.3 23.0 23.0 30.7 25.3
Consulting and legal 25.0 20.6 9.7 13.2 16.4
Credit and collection services 20.6 18.0 13.6 12.4 14.2
Postage and delivery 15.3 15.8 16.2 14.9 15.4
Communications 15.0 14.1 13.3 14.2 15.0
Operating supplies 12.3 11.4 11.3 11.2 11.3
Amortization of intangible assets 8.4 21.0 8.3 8.8 8.9
FDIC premiums 3.9 3.9 3.9 2.8 2.8
Merger-related expenses - - - 2.4 8.3
Other real estate income 0.1 (3.1) (0.7) (2.3) (0.4)
Other expense 47.0 66.2 71.5 42.3 47.0
--------- --------- --------- --------- ---------
Total noninterest expense $ 776.8 $ 763.8 $ 742.7 $ 697.9 $ 706.6
========= ========= ========= ========= =========
Efficiency ratio 56.9 % 56.3 % 55.4 % 56.2 % 57.5 %
21
Provision for Loan Losses. The SunTrust Allowance for Loan Losses Committee
meets at least quarterly to affirm the allowance methodology, analyze provision
and charge-off trends and assess the adequacy of the allowance. The allowance
analysis is based on specifically analyzed loans, historical loss rates and
other internal and external factors that affect credit risk. These other factors
consider variables such as the interest rate environment, corporate and consumer
debt levels, volatility in the financial markets, and known events that affect
the economies of the Company's primary market area. These factors are key
elements in the assessment of the adequacy of the allowance because of their
impact on borrowers' repayment capacity.
Provision for loan losses totaled $80.2 million in the third quarter of 2001
compared to charge-offs of $79.9 million. Both the provision and net charge-off
totals for the third quarter of 2000 were $30.5 million. The increase in
charge-offs, from 0.17% in the third quarter of 2000 to 0.46% in the third
quarter of 2001, was driven primarily by credit deterioration in line with the
economic slowdown. In addition, SunTrust continued its practice of proactive
problem loan management during the third quarter of 2001 by selling two large
corporate loans totaling $56.4 million. Losses related to these sales
transactions totaled $15.9 million.
At September 30, 2001, SunTrust's allowance for loan losses totaled $866.4
million, or 1.24% of quarter-end loans and 176.7% of total nonperforming loans.
These figures were $874.5 million, 1.21% and 229.6%, respectively at September
30, 2000. The year-over-year decline in the allowance was primarily related to
the SunTrust Credit Corporation sales transaction in the second quarter of 2001.
The allowance to loans ratio increased from the third quarter of 2000 due to
lower outstanding loans at the end of the most recent period. The decrease in
the allowance to nonperforming loan ratio from one year ago was the result of a
28.7% increase in nonperforming loans.
22
Summary of Loan Loss Experience Table 5
(Dollars in millions)
Quarters
-------------------------------------------------------------------------------------
2001 2000
--------------------------------------------------- -------------------------------
3 2 1 4 3
-------------- -------------- ---------------- -------------- --------------
Allowance for Loan Losses
Balances - beginning of quarter $ 866.1 $ 872.0 $ 874.5 $ 874.5 $ 874.5
Allowance from acquisitions and
other activity - net - (6.7) (3.5) (0.1) -
Provision for loan losses 80.2 39.6 67.3 53.5 30.5
Charge-offs:
Commercial (65.1) (30.5) (56.8) (47.0) (28.7)
Real estate:
Construction (0.1) 0.5 (0.6) - -
Residential mortgages (2.3) (3.6) (2.3) (1.8) (1.6)
Other (0.1) 0.2 (1.0) (1.0) (1.2)
Business credit card (0.5) (0.4) (0.5) (1.6) (1.7)
Consumer loans (23.9) (19.4) (18.2) (15.7) (13.9)
-------------- -------------- ---------------- -------------- --------------
Total charge-offs (92.0) (53.2) (79.4) (67.1) (47.1)
-------------- -------------- ---------------- -------------- --------------
Recoveries:
Commercial 4.5 7.8 4.6 4.9 8.5
Real estate:
Construction 0.6 0.1 0.2 - 0.3
Residential mortgages 0.6 0.5 0.5 1.1 0.9
Other 0.3 (0.6) 1.4 1.3 0.6
Business credit card 0.3 0.5 0.4 0.5 0.5
Consumer loans 5.8 6.1 6.0 5.9 5.8
-------------- -------------- ---------------- -------------- --------------
Total recoveries 12.1 14.4 13.1 13.7 16.6
-------------- -------------- ---------------- -------------- --------------
Net charge-offs (79.9) (38.8) (66.3) (53.4) (30.5)
-------------- -------------- ---------------- -------------- --------------
Balance - end of quarter $ 866.4 $ 866.1 $ 872.0 $ 874.5 $ 874.5
============== ============== ================ ============== ==============
Quarter-end loans outstanding $ 69,630.2 $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6
Average loans 69,024.0 69,900.5 71,654.4 71,774.6 71,506.9
Allowance to quarter-end loans 1.24% 1.26% 1.24% 1.21% 1.21%
Allowance to nonperforming loans 176.7 210.6 250.1 215.8 229.6
Net charge-offs to average loans
(annualized) 0.46 0.22 0.38 0.30 0.17
Provision to average loans (annualized) 0.46 0.23 0.38 0.30 0.17
Recoveries to total charge-offs 13.2 27.1 16.5 20.4 35.2
23
Nonperforming Assets Table 6
(Dollars in millions)
2001 2000
---------------------------------------------------- ------------------------------
September 30 June 30 March 31 December 31 September 30
------------------ ------------- -------------- -------------- -------------
Nonperforming Assets
Nonaccrual loans:
Commercial $ 339.1 $ 292.9 $ 210.5 $ 273.6 $ 270.4
Real Estate:
Construction 4.7 2.3 2.1 2.2 2.5
Residential mortgages 64.9 56.6 83.3 81.8 65.1
Other 49.5 38.2 32.8 29.0 23.9
Consumer loans 32.0 21.1 20.0 18.7 19.0
------------- ---------- ---------- --------- ---------
Total nonperforming loans 490.2 411.1 348.7 405.3 380.9
Other real estate owned 18.9 20.3 20.6 23.0 23.6
------------- ---------- ---------- --------- ---------
Total nonperforming assets $ 509.1 $ 431.4 $ 369.3 $ 428.3 $ 404.5
============= ========== ========== ========= =========
Ratios:
Nonperforming loans to total loans 0.70% 0.60% 0.50% 0.56% 0.53%
Nonperforming assets to total loans
plus other real estate owned 0.73 0.63 0.52 0.59 0.56
Accruing Loans Past Due
90 Days or More $ 177.0 $ 211.8 $ 223.7 $ 181.2 $ 150.8
Nonperforming Assets. Nonperforming assets, which consist of nonaccrual loans,
restructured loans and other real estate owned, increased $104.6 million, or
25.9%, from September 30, 2000 to September 30, 2001. Much of the increase can
be attributed to the slowing economy, which has impacted a diverse mix of
industries, including textiles, agribusiness, certain retail operations and
companies impacted by asbestos litigation. The Company's largest nonperforming
loans at September 30, 2001 also represent a diverse mix of industries without
concentration in any single sector. While the uncertain economic outlook makes
it difficult to predict future nonperforming asset levels, management
anticipates further increases during the fourth quarter of 2001.
Interest income on nonaccrual loans, if recognized, is recorded using the cash
basis method of accounting. During the first nine months of 2001, this amounted
to $12.2 million. Interest income of $21.2 million would have been recorded if
all nonaccrual and restructured loans had been accruing interest according to
their original contract terms.
24
Loan Portfolio by Types of Loans Table 7
(In millions)
2001 2000
------------------------------------------------- -------------------------------
September 30 June 30 March 31 December 31 September 30
-------------- --------------- -------------- -------------- --------------
Commercial $ 29,681.8 $ 29,156.1 $ 30,583.3 $ 30,781.1 $ 30,821.6
Real estate:
Construction 3,704.9 3,773.5 3,631.0 2,966.1 2,884.3
Residential mortgages 17,602.4 17,536.8 17,706.6 19,953.0 20,557.4
Other 7,898.5 7,761.4 7,693.9 8,121.4 7,960.6
Business credit card 85.2 86.2 82.6 76.8 79.3
Consumer loans 10,657.4 10,624.2 10,662.7 10,341.4 9,810.4
------------ ------------ ------------ ------------ ------------
Total loans $ 69,630.2 $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6
============ ============ ============ ============ ============
Loans. Total loans at September 30, 2001 were $69.6 billion, a decrease of $2.5
billion or 3.4% from September 30, 2000. However, adjusting for $2.8 billion of
loan securitizations since the third quarter of 2000 and $390.1 million in loans
included in the sale of assets and liabilities of STI Credit Corp in the second
quarter of 2001, loans actually grew 1.0%. The Company recorded a decline in
commercial loans, down 3.7% from September 30, 2000, while recognizing
significant loan growth in its consumer loans, up 8.6%, and real estate
construction portfolio, up 28.5% primarily in commercial construction.
Residential real estate declined 14.4% from September 30, 2000 due to the
Company's securitizations of $2.8 billion in residential mortgages in the fourth
quarter of 2000 and first quarter of 2001. Of the $17.6 billion in residential
mortgages at September 30, 2001, $2.5 billion were home equity loans, which
demonstrated growth of 18.2% over the last twelve months.
Income Taxes. The provision for income taxes was $163.1 million and $523.7
million for the third quarter and first nine months of 2001 compared to $154.7
million and $476.2 million in the same periods last year, respectively. This
represents an effective tax rate of 34.8% for the nine months ended September
30, 2001, compared to 34.4% for the same period last year.
Securities available for sale. The investment portfolio is managed to optimize
yield over an entire interest rate cycle while providing liquidity and managing
market risk. At September 30, 2001, approximately 1% of the portfolio consisted
of U.S. Treasury securities, 13% U.S. government agency securities, 51%
mortgage-backed securities, 14% asset-backed securities, 13% corporate bonds, 3%
municipal securities and 5% other securities. U.S. government or federal agency
guarantees back the majority of SunTrust's holdings in mortgage-backed
securities thus limiting the credit risk associated with the mortgage loans.
During the third quarter of 2001, the Company continued to reposition its
investment portfolio by selling $852 million in investment securities, resulting
in realized securities gains of $33.0 million. The sold securities were replaced
with $166 million of shorter-term fixed rate securities and $589 million of
shorter-term floating rate securities. In conjunction with the securities
portfolio repositioning during the third quarter of 2001, the Company reduced
market risk by shrinking the investment portfolio's size and shortening its
average life. The portfolio size decreased by $300 million, on an amortized cost
basis, from June 30, 2001 to September 30, 2001 and the average life shortened
from 4.2 years to 4.0 years over the same period. The average portfolio yield
decreased from 6.70% in the second quarter of 2001 to 6.56% in the third quarter
of 2001, primarily due to lower reinvestment rates.
25
The carrying value of the securities portfolio, all of which is classified as
"Securities available for sale", reflected $2.8 billion in net unrealized gains
at September 30, 2001, including a $2.3 billion unrealized gain on SunTrust's
investment in common stock of The Coca-Cola Company. The market value of
SunTrust's holdings of The Coca-Cola Company common stock increased $89.3
million during the third quarter of 2001, which did not affect the net income of
SunTrust, but was included in comprehensive income.
Liquidity Management. Liquidity is managed to ensure there is sufficient funding
to satisfy demand for credit, deposit withdrawals and attractive investment
opportunities. A large, stable deposit base, strong capital position and
excellent credit ratings are the solid foundation for the Company's liquidity
position.
Funding sources primarily include consumer and commercial deposits, but also
include borrowed funds and cash flows from operations. Consumer and commercial
deposits, the Company's largest and most cost-effective source of funding,
accounted for 65% of the funding base on average for the third quarter of 2001
compared to 62% in the second quarter of 2001 and 61% in the third quarter of
2000. Net borrowed funds, which primarily include short-term funds purchased and
sold, wholesale domestic and foreign deposits, other short term borrowings and
long term debt, were $31.0 billion at September 30, 2001, compared with $30.6
billion at June 30, 2001 and $33.9 billion at September 30, 2000. Cash flows
from operations are also a significant source of liquidity. Net cash from
operations primarily results from net income adjusted for noncash items such as
depreciation and amortization, provision for loan losses, and deferred tax
items.
Liquidity is strengthened by ready access to a diversified base of wholesale
funding sources. These sources include fed funds purchased, securities sold
under agreements to repurchase, negotiable certificates of deposit, offshore
deposits, Federal Home Loan Bank advances, Global Bank Note issuance, and
commercial paper issuance by the Parent Company. Liquidity is also available
through unpledged securities in the investment portfolio and the securitization
of loans.
During the third quarter of 2001, the Company further reduced reliance on
shorter-term purchased funds by issuing bank level subordinated debt and
borrowing from the Federal Home Loan Bank. The bank reopened the 6.375%
Subordinated Bank Note issuance due April 2011 by issuing an additional $500
million under this program in August. The additional issuance brings the total
amount issued under this program to $1 billion.
The Company has a contingency funding plan that stress tests liquidity needs
that may arise from certain events such as rapid loan growth or significant
deposit runoff. The plan also provides for continual monitoring of net borrowed
funds dependence and available sources of liquidity. Management believes the
Company has the funding capacity to meet the liquidity needs arising from
potential events.
26
Derivatives. Derivative financial instruments, such as interest rate swaps,
options, caps, floors, futures, forward contracts and credit derivatives, are
components of the Company's risk management profile. The Company also enters
into derivative instruments as a service to banking customers. Where contracts
have been created for customers, the Company generally enters into offsetting
positions to eliminate the Company's exposure to market risk.
The Company monitors its sensitivity to changes in interest rates and may use
derivative instruments to hedge this risk. Prior to the adoption of SFAS 133,
certain interest rate swaps were classified as hedges and recorded in the margin
using the accrual method of accounting. The related market value of the
derivative was accounted for off-balance sheet. These interest rate swap
accruals decreased net interest income by $0.6 million in the first nine months
of 2000. On January 1, 2001, the Company adopted SFAS 133. Accordingly, all
derivatives are recorded in the financial statements at fair value.
Certain derivatives are classified as trading assets and liabilities. Additional
trading income of $4.9 million and $7.9 million was recorded in the third
quarter and first nine months of 2001, respectively, to adjust the value of
these interest rate swaps to their current market value.
The following table shows the derivative instruments entered into by the Company
as an end-user.
Derivative Instruments Table 8
(Dollars in thousands)
As of September 30, 2001
--------------------------------------------------------------------------------------
Estimated Fair Value
------------------------------------
Weighted
Average Average
Notional Maturity Received Average Unrealized Unrealized
Balance In Months Rate Pay Rate Gains Losses Net
------------------------------------------------------------------------------------------
Mortgage Lending Commitments
Forward Contracts $ 4,517,769 2 - % - % $ 70 $ (59,988) $ (59,918)
Interest Rate Lock Commitments 2,590,560 2 - - 5,789 (3,736) 2,053
Option Contracts 45,000 2 5.00(1) - - - -
----------- --------------------------------------
Total Mortgage Related Derivatives 7,153,329 5,859 (63,724) (57,865)
Foreign Currency
Forward Contracts 1,309,343 4 - - 13,486 (16,726) (3,240)
Interest Rate Swaps 4,800,875 27 3.98 5.26 63,958 (130,006) (66,048)
Interest Rate Caps/Floors 750,000 12 5.23(1) - 11,627 - 11,627
Futures Contracts 160,000 13 - - - (787) (787)
Euro Dollar Options 400,000 12 - - 680 (657) 23
Equity Collar 56,081 18(2) - - - - -
Credit Derivatives 54,250 37 - - 477 (426) 51
----------- ---------
Total Derivatives $14,683,878 $(116,239)
=========== =========
(1) Average option strike price.
(2) Option expiration.
27
Capital Ratios Table 9
(Dollars in millions)
2001 2000
----------------------------------------------------- --------------------------------
September 30 June 30 March 31 December 31 September 30
---------------- ----------------- -------------- -------------- --------------
Tier 1 capital $ 7,142.2 $ 6,906.6 $ 6,760.5 $ 6,850.6 $ 6,677.4
Total capital 11,311.9 10,652.0 10,507.1 10,488.9 10,216.1
Risk-weighted assets 98,759.6 97,005.9 98,690.0 96,656.7 95,183.9
Risk-based ratios:
Tier 1 capital 7.23% 7.12% 6.85% 7.09% 7.02%
Total capital 11.45 10.98 10.65 10.85 10.73
Tier 1 leverage ratio 7.28 6.90 6.77 6.98 6.92
Total shareholders' equity to assets 7.94 7.81 7.55 7.95 7.64
Capital Resources. Regulatory agencies measure capital adequacy within a
framework that makes capital requirements sensitive to the risk profiles of
individual banking companies. The guidelines define capital as either Tier 1
(primarily common shareholders' equity, as defined to include certain debt
obligations) or Tier 2 (to include certain other debt obligations and a portion
of the allowance for loan losses and since 1998, 45% of the unrealized gains on
equity securities). The Company is subject to a minimum Tier 1 capital ratio
(Tier 1 capital to risk-weighted assets) of 4%, total capital ratio (Tier 1 plus
Tier 2 to risk-weighted assets) of 8% and Tier 1 leverage ratio (Tier 1 to
average quarterly assets) of 3%. To be considered a "well capitalized"
institution, the Tier 1 capital ratio, the total capital ratio, and the Tier 1
leverage ratio must equal or exceed 6%, 10% and 5%, respectively. SunTrust is
committed to remaining well capitalized.
The Company raised $100 million of regulatory capital during 2000 through the
sale of preferred shares issued by a real estate investment trust subsidiary. In
the first quarter of 2001, the Company raised an additional $500 million of
regulatory capital through the issuance of subordinated debt under the Global
Bank Note program.
The Company purchased 8.2 million shares of its common stock during the first
nine months of 2001. As of September 30, 2001, the Company is authorized to
purchase up to 6.8 million shares under current Board resolutions. During the
third quarter of 2001, no additional shares were purchased.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that there have not been any material changes in
quantitative and qualitative information about market risk since year-end 2000.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
o The Registrant filed a Current Report on Form 8-K dated October 11,
2001. The purpose of this report was to file certain exhibits that
are to be incorporated by reference into its Registration Statement
on Form S-3.
o The Registrant filed a Current Report on Form 8-K dated October 10,
2001. The purpose of this report was to file as an exhibit the press
release reporting September 30, 2001 quarterly results.
o The Registrant filed a Current Report on Form 8-K dated September 25,
2001. The purpose of this report was to file as an exhibit the
announcement that SunTrust had entered into a purchase agreement with
Huntington Bancshares Incorporated to acquire the Florida banking
franchise of Huntington National Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 14th day of November, 2001.
SunTrust Banks, Inc.
--------------------
(Registrant)
/s/ William P. O'Halloran
----------------------------------
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
29